Mortgage and paying off credit card debt on completion

Giraffe01

I am hoping for some advice please. We have just accepted an asking price offer on our house which will leave us with a deposit of £122,000. As a result of home improvements etc we have a lot of credit card debt (£46,000 in total between us) so of course we intend to use just under half the proceeds of our house sale to pay them all off on completion. The problem is that we need a mortgage for a new house. We have just had an AiP declined by Nationwide because of our credit card debt even though we state it will all be paid off on completion. Our income multiples and credit reports are clean and the remaining money we have for the deposit will give us LTV 80% for the amount we want to borrow. Are we likely to face this problem everywhere? Or are Nationwide overly cautious (I recognise it is an eye-watering amount)? It just seems so counter-productive to sell our house, pay off the debts immediately but shell out on rent while we try and find somewhere to buy. Has anyone else had any experience of this situation?

kingstreet

Are you sure this is the reason for the decline?

That would be very unusual, IMHO. Who told you the reason? Have you obtained copies of your credit files prior to attempting the DIP?

Giraffe01

Sorry, I should have offered a bit more detail. The Nationwide borrowing calculator on their website tells you to declare any credit card debt that won't be paid on or before completion. I assumed this would be the same instruction on the DiP. Apparently not. I should have detailed the outstanding debt and another box will have appeared to ask whether it would be paid off. As it was I left the credit card debt boxes blank and obviously when they credit checked against our report they could see the descrepancy in this declaration. We spoke to Nationwide who confirmed we had been declined because of the outstanding debt on our credit reports but he said he would remove their search entry (which takes a week) so that we could try again. He warned that it might still be declined because of the credit card debt so obviously we're reluctant to try again. Should the level of debt make a difference even if we do declare that it will be paid in full on completion?

kingstreet

You haven't been declined for level of debt, you've been declined for undisclosed credit.

In the DIP it asks you for the loans, credit card balances etc, then the amounts being repaid, on or before completion.

If you don't put down what you have, the system can reject your application. The broker system allows you to go back in and change your entry, so the result changes accordingly. No new search is required either.

I had a similar case last week, where the applicant had paid off some credit recently, but the old balances still showed on Experian. The borrower didn't know, so assumed they were gone, but Nationwide reduced the possible borrowing accordingly.

Once I went back to the borrower and investigated, we realised the problem and corrected it and the amount available went up to what the affordability calculator had indicated in the first place.

Giraffe01

Ps we have copies of our reports - all ok. I know Nationwide use Experian (our original DIP application is already showing on there). Mine is high end of fair - negative factors affecting mine are the high level of debt and my husbands is excellent despite having more debt than me!

Giraffe01

Ah, that does make sense. He just scared us by warning it could be declined again. Thank you so much, perhaps we will try and apply correctly this time or use a broker to be safe.

amnblog

Yes - 'use a broker to be safe'

Thrugelmir

Giraffe01 wrote: »

As a result of home improvements etc we have a lot of credit card debt (£46,000 in total between us)

Your credit file most likely suggests that your management of your personal finances wasn't great. So the risk you pose to the NW is that you'll end up in the same position again down the road.

Why not tackle your debt head on for a period of time. At the level of borrowing you are still seeking. Your household income appears more than adequate to do this.

Giraffe01

The only way to tackle the debt is to sell our current house which is what we are in the process of doing. The main reason for us selling is to pay off this debt and upsize due to a growing family.

I slightly overestimated what we owe – it is 36k in total which is obviously still a lot but we haven’t had any missed/late payments so we have proof that we have so far managed that level of debt satisfactorily. Both our (Experian) credit reports are only classed as ‘fair’ because of the debt though. This was our first home in a desirable location but needed a lot of work so the amount accumulated as a result of re-plastering, new bathroom, new kitchen, new boiler, new carpets etc. The work we have done (and the buoyant state of the market in our area) has paid off though as the profit we are making from the house sale is more than double what we have spent on it. On completion we will therefore be in a position to pay off all debts in full and leave us with a healthy deposit for our next house and enough to cover moving costs etc. What we don’t want to do is sit in a rented house and watch this deposit dwindle as the cost of renting has gone crazy in our area. We are also fearful that will be priced out of the area want to buy in as it is moving so fast at the moment. It is therefore preferable to secure a mortgage and start looking for our next place now. We contacted a broker last night who has given us a DiP for the amount we need so fingers crossed that it will all go through when it comes down to applying in full. I am assuming that any mortgage offer is on condition that all debts will be paid off on completion and our solicitor will collect evidence of this to provide to the lender? How long do they give you to provide this evidence usually?

kingstreet

Giraffe01 wrote: »

I am assuming that any mortgage offer is on condition that all debts will be paid off on completion and our solicitor will collect evidence of this to provide to the lender? How long do they give you to provide this evidence usually?

Yes.

Maybe to evidence - depends on solicitor and lender concerned.

Timescale - never seen one mentioned.

Experian_company_representative

If you can get your card debts to below 25% of your credit limits it should help any credit rating the mortgage company calculates for you. Bear in mind your credit report generally reflects the previous month for open credit accounts.

James